Inside the Star

Detroit avoids bankruptcy after judge tosses lawsuit over fiscal deal

A Michigan judge on Wednesday dismissed a lawsuit that challenged Detroit’s financial stability agreement and which had threatened to leave the city without cash to make a critical debt payment due on Friday.

Detroit Mayor Dave Bing, right, had asked city council to drop the lawsuit.

By:Reuters Published on Wed Jun 13 2012

MASON, MICH.- A Michigan judge on Wednesday dismissed a lawsuit that challenged Detroit’s financial stability agreement and which had threatened to leave the city without cash to make a critical debt payment due on Friday.

Ingham County Court Judge William Collette ruled that Detroit’s corporation counsel, the city’s top lawyer, lacked the authority to bring the lawsuit. Collette said the power to bring such a lawsuit rested with Detroit’s mayor and city council.

“This is such an obvious issue. I saw it from the moment it was filed,” the judge said.

Corporation Counsel Krystal Crittendon, who filed the complaint in the state Court of Claims earlier this month, claimed the financial stability agreement, which put Detroit’s struggling finances under stricter state control, was invalid because Michigan owes the city more than $230 million and it was in default to the city.

Michigan officials who entered into the pact to repair Detroit’s sagging finances in April said the lawsuit would have derailed plans to provide the city $137 million in budget relief.

Detroit Mayor Dave Bing had asked the city council this week to drop the lawsuit, of which he had said he was not “entirely agreed” when it was filed last month.

As a result of the ruling, the state said it would divert revenue sharing due to the city to pay off an interim $80 million borrowing. Without this money officials in Bing’s administration had said the city would run out of cash by Friday, making it impossible to make the $34.2 million payment due that same day on its $1.5 billion of pension obligation certificates of participation.

That uncertainty led Fitch Ratings on Tuesday to downgrade Detroit’s debt ratings to the C category, signifying an increased chance of default.